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Blockchain/Level I · Money/1.3 Genesis/Lesson 7

The first boom and bust cycles

From $1 to $1,000 and back: the anatomy of the first cycles

MaterialsA block explorerA historical bitcoin price chart

Wonder

  1. How did a currency with no issuer and no backing reach parity with the dollar about two years after launch?
  2. What role does a fixed, halving supply schedule play when speculative demand outpaces utility adoption?
  3. How can a network remain operationally stable while its primary custodial exchange collapses?

Explore

  1. Bitcoin reached one-to-one parity with the US dollar in February 2011. By June of that year, press coverage, including Gawker’s 1 June 2011 article on the darknet market Silk Road, helped drive the price to about $31. This initial surge was fueled by early adopters seeking an alternative to traditional banking systems and those exploring illicit trade channels on the Tor network.
  2. The momentum reversed sharply by November 2011, with the price falling to around $2. This collapse marked the first significant bear market. The fall followed the June breach at Mt. Gox and the fading of a speculative rush that had run far ahead of actual use as a payment system.
  3. On 28 November 2012, the protocol executed its first halving event at block 210,000. The block subsidy dropped from 50 BTC to 25 BTC per mined block. This mechanism, hard-coded into the software, reduced the rate of new issuance by fifty percent, a scheduled cut that market participants have watched closely ever since.
  4. Spring 2013 brought renewed attention during the Cyprus banking crisis, pushing prices to roughly $266 in April before halving within days. By November 2013, following a US Senate hearing on cryptocurrency and surging trading volume from China, the price surpassed $1,000. The People’s Bank of China subsequently barred financial institutions from handling bitcoin in December.
  5. The FBI shut down Silk Road in October 2013, removing a major driver of illicit demand. In February 2014, Mt. Gox, once the dominant exchange but by then overtaken by rivals, halted withdrawals and filed for bankruptcy. Approximately 850,000 BTC were reported lost in the collapse, and the price entered a prolonged decline that bottomed in January 2015 at about $170 (briefly near $150 on some exchanges).
  6. These cycles reveal a recurring pattern: new media attention drives speculative inflows, thin markets amplify volatility, and the failure of central intermediaries like exchanges exposes custodial risks. The network itself continued operating through these shocks, demonstrating resilience independent of its trading infrastructure. Open a block explorer to view the subsidy change at block 210,000.

Key facts

  • Bitcoin reached parity with the US dollar in February 2011 and peaked near $31 in June 2011.
  • The first halving occurred on 28 November 2012, reducing the block subsidy from 50 to 25 BTC.
  • Silk Road launched in early 2011 and was shut down by the FBI in October 2013.
  • Mt. Gox halted withdrawals in February 2014 with approximately 850,000 BTC reported lost.
  • The People’s Bank of China barred financial institutions from handling bitcoin in December 2013.
  • The price fell to about $170 in January 2015, more than 85% below its 2013 peak.

Exercise nine, six, three, one

9CollectList 9 distinct events between January 2011 and December 2015 that influenced Bitcoin’s price or adoption.
6ClusterGroup these 9 events into 6 categories: media attention, regulatory action, protocol change, exchange failure, illicit market activity, or macroeconomic crisis.
3DistillReduce the 6 groups to 3 primary drivers of volatility observed in this period.
1CrystallizeWrite one sentence explaining why a decentralized network can survive the collapse of its largest centralized exchange.

Fact check

Dates, figures and claims checked against the published sources listed below.

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